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Carpenter Technology Reports First Quarter Results
WYOMISSING, Pa., Oct 26, 2010 (BUSINESS WIRE) -- Carpenter Technology Corporation (NYSE:CRS) today reported net income of $7.6 million or $0.17 per share for the quarter ended September 30, 2010. This compares to a net loss of $9.3 million or negative $0.21 per share for the same quarter a year earlier.
"Strong revenue and volume growth contributed to a significant increase in operating margin and profitability over the prior year," said William A. Wulfsohn, President and Chief Executive Officer. "We also maintained a consistent operating margin compared to our recent fourth quarter on slightly lower, seasonally-adjusted volumes, which was in line with our expectations."
"Demand in our key end markets continues to strengthen. In addition to ongoing strong demand for materials used in aerospace engines, we have seen a significant pick-up in our energy business. This includes increased demand for materials used in power generation and our expanded participation in oil and gas applications. We still expect aerospace fastener demand will increase in the second half of the fiscal year."
"The increase in order activity is creating tight capacity and longer customer lead times," said Wulfsohn. "Our inventory levels are also running higher due to strong customer demand for our premium products. We are hiring and training employees to expand available production. We are also taking pricing actions and making mix management decisions to improve our profitability and create additional flex capacity for attractive incremental volume."
"Overall, the year is shaping up as we expected. We expect our financial performance will improve over the balance of the year behind higher volumes, an increasingly favorable product mix, our continued cost focus and the impact of pricing actions. We also plan to be active in pursuing growth strategies that improve our position in the marketplace."
First Quarter Results
Financial highlights for the first quarter include:
(a) non-GAAP financial measure that is explained in the attached tables
Net sales for the first quarter were $351.7 million, up 50 percent from the prior year. Excluding surcharge revenue, net sales were $263.7 million, up 40 percent from a year ago. Total pounds sold in the first quarter were 39 percent higher than the fiscal year 2010 first quarter. Sequentially, net sales excluding surcharge decreased 2 percent on 7 percent lower volume as a result of typical seasonal effects in the summer quarter.
Gross profit was $49.8 million compared with $19.2 million in the fiscal year 2010 first quarter. The higher gross profit in this year's first quarter was driven by significantly higher volumes and better overall cost performance, partially offset by a slightly weaker product mix. The overall mix results are comprised of strong margins in the Premium Alloy Operations (PAO) segment, more than offset by low margins in the Advanced Metals Operations (AMO) segment as a result of taking on increased volumes over the last year in lower value applications within automotive and other markets.
SG&A expenses were $35.7 million, compared with $32.5 million for the first quarter of fiscal year 2010. The year-over-year increase is due to higher variable compensation accruals versus the prior period, and resources added to drive strategic growth initiatives. For the year, SG&A cost is expected to increase about 8 percent. This is consistent with the Company's goal to support growth strategies while limiting the increase in fixed costs to less than half the rate of revenue growth.
Operating income for the first quarter was $14.1 million compared with a loss of $13.3 million a year earlier. Excluding surcharge revenue and pension earnings, interest and deferrals (EID), operating margin was 8.7 percent for the quarter compared to a negative 2.0 percent in the fiscal year 2010 first quarter. There was little earnings impact in the quarter from LIFO effects. Sequentially, operating income was higher in the current quarter compared to $10.2 million reported in the fiscal year 2010 fourth quarter.
Other Income was $1.6 million compared to $1.5 million in the fiscal year 2010 first quarter. The provision for income tax was $3.9 million or 34 percent of pre-tax income compared with an income tax benefit of $6.8 million or 42 percent of pre-tax loss a year ago. The full fiscal year tax rate is expected to be about 28 percent.
Net income was $7.6 million or $0.17 per diluted share, compared with a first quarter net loss of $9.3 million or $0.21 per diluted share in fiscal year 2010.
Free cash flow, which we define as cash from operations less capital expenditures and dividends, was a negative $46.5 million in the quarter. The negative cash flow mainly reflects investment in higher inventory levels to support growing customer demand.
Aerospace market sales were $146.1 million in the first quarter, up 42 percent compared with the same period a year ago. Excluding surcharge revenue, aerospace sales were up 32 percent on 29 percent higher volume. Aerospace results reflect the fourth consecutive quarter of strong demand for engine components and the beginning stages of improved fastener order activity. Demand for nickel, stainless and titanium fasteners is expected to strengthen in the second half of the fiscal year.
Industrial market sales were $83.0 million, up 68 percent compared with the first quarter of fiscal year 2010. Excluding surcharge revenue, industrial sales increased 46 percent on 36 percent higher volume. The year-over-year result reflects increased overall demand for industrial products that outpaced general market growth rates. There was also a positive mix shift to higher value fittings and semiconductor applications.
Consumer market sales were $33.7 million, an increase of 45 percent from the first quarter of fiscal year 2010. Excluding surcharge revenue, sales increased 36 percent on 38 percent higher volume. Increases in volumes and revenues resulted from supply chain inventory restocking and demand growth from Asia for fasteners and electronic applications.
Automotive market sales were $30.3 million, an increase of 55 percent from a year earlier. Excluding surcharge revenue, automotive sales rose 36 percent as volumes increased 46 percent. The year-over-year volume increase reflects demand growth related to fuel system components as well as strong shipments of lower value automotive valves.
Energy market sales of $29.9 million increased 145 percent from the first quarter a year earlier. Excluding surcharge revenue, energy market sales increased 156 percent on 149 percent higher volume. The year-over-year increase reflects sharply higher demand and expansion into new applications in the oil and gas sector, as well as recovering demand for high value materials used in industrial gas turbines.
Medical market sales were $28.7 million in the first quarter, up 10 percent from a year ago. Excluding surcharge revenue, medical market sales increased 16 percent on 9 percent higher volume. The year-over-year increase reflects increased demand and re-stocking of titanium products within the supply chain.
International sales in the first quarter were $109.8 million, an increase of 53 percent compared with the same quarter a year earlier. Sales in Europe were up 42 percent on 36 percent higher volume driven mainly by increased demand in Aerospace and Energy. Revenues increased 63 percent in Asia on 45 percent higher volume driven by significant broad based growth in most markets. International sales in the quarter represented 31 percent of total sales, unchanged from the prior year.
During the first quarter, the Company recorded expense associated with its pension and other post retirement benefit plans of $15.2 million or $0.21 per diluted share which reflects our planned non-cash net pension expense for fiscal 2011 of $61 million, or $0.85 per diluted share. The expense will be allocated equally through the fiscal year. The Company expects to make a cash contribution of approximately $4 million in the fourth quarter of fiscal year 2011.
Non-GAAP Financial Measures
This press release includes discussions of financial measures that have not been determined in accordance with U.S. generally accepted accounting principles ("GAAP"). The non-GAAP financial measures, accompanied by reasons why the Company believes the measures are important, are included in the attached schedules.
Carpenter will host a conference call and webcast today, October 26, at 10:00 a.m., ET, to discuss financial results and operations for the fiscal first quarter. Please call 610-208-2222 for details of the conference call. Access to the call will also be made available at Carpenter's web site (http://www.cartech.com) and through CCBN (http://www.ccbn.com). A replay of the call will be made available at http://www.cartech.com or at http://www.ccbn.com.
About Carpenter Technology
Carpenter produces and distributes specialty alloys, including stainless steels, titanium alloys, and superalloys. Information about Carpenter can be found on the Internet at http://www.cartech.com.
Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected, anticipated or implied. The most significant of these uncertainties are described in Carpenter's filings with the Securities and Exchange Commission including its annual report on Form 10-K for the year ended June 30, 2010 and the exhibits attached to that filing. They include but are not limited to: 1) the cyclical nature of the specialty materials business and certain end-use markets, including aerospace, industrial, automotive, consumer, medical, and energy, or other influences on Carpenter's business such as new competitors, the consolidation of competitors, customers, and suppliers or the transfer of manufacturing capacity from the United States to foreign countries; 2) the ability of Carpenter to achieve cost savings, productivity improvements or process changes; 3) the ability to recoup increases in the cost of energy, raw materials, freight or other factors; 4) domestic and foreign excess manufacturing capacity for certain metals; 5) fluctuations in currency exchange rates; 6) the degree of success of government trade actions; 7) the valuation of the assets and liabilities in Carpenter's pension trusts and the accounting for pension plans; 8) possible labor disputes or work stoppages; 9) the potential that our customers may substitute alternate materials or adopt different manufacturing practices that replace or limit the suitability of our products; 10) the ability to successfully acquire and integrate acquisitions; 11) the availability of credit facilities to Carpenter, its customers or other members of the supply chain; 12) the ability to obtain energy or raw materials, especially from suppliers located in countries that may be subject to unstable political or economic conditions; 13) our manufacturing processes are dependent upon highly specialized equipment located primarily in one facility in Reading, Pennsylvania for which there may be limited alternatives if there are significant equipment failures or catastrophic event; and (14) our future success depends on the continued service and availability of key personnel, including members of our executive management team, management, metallurgists and other skilled personnel and the loss of these key personnel could affect our ability to perform until suitable replacements are found. Any of these factors could have an adverse and/or fluctuating effect on Carpenter's results of operations. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Carpenter undertakes no obligation to update or revise any forward-looking statements.
SOURCE: Carpenter Technology Corporation
Carpenter Technology Corporation
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